LONDON (AFX) - The dollar was stronger in quiet early trade after yesterday's ISM index reached the highest level since March 2001, but gains were capped by increased tensions in the Middle East and the rising oil price, dealers said. "The dollar was knocked lower yesterday against European currencies," Will Rugg of Standard & Poor's MMS said. The flows went into the swiss franc and sterling, and were largely triggered by mounting concerns over the increasing violence in the Middle East and the spike in oil prices, Rugg said. "Most of the safe haven flows went into Treasuries, but we've seen short term speculative flows into the swiss franc," he said. Concerns extended to the US-led alliance's operation against terrorism. "Market participants are concerned that the US-led alliance against terrorism may crumble on the back of the escalating violence between Israel and the Palestinians, Michael Klawitter at West LB said. However, Rugg noted that movements were exaggerated by very thin trade, with many traders away for Easter yesterday. "Trade is still really thin this morning. People are just getting back from the long weekend," he said. "Strong data hasn't helped the dollar out recently," he said, noting that the US unit remained strong throughout the recession. The continuing weakness of US equities is also weighing on dollar sentiment, Rugg said. "Equities are still struggling with Enronitis and the more conservative accounting procedures," Rugg said "We aren't seeing profit forecasts increasing in line with the recovery," he added. The euro was tracking broad dollar moves, he said. Klawitter said he expects the European Central Bank's rate-setting meeting on Thursday to be "a non event to euro-usd". The yen was weaker across the board, weighed down by the the high oil price and the gloomy economic outlook, Rugg said. "Following the end of the fiscal year, investors are refocusing on the fundamentals of the Japanese economy, which aren't looking good," Rugg said. Comments from Deputy Finance Minister for International Affairs Haruhiko Kuroda dealt a further blow to the ailing yen. Kuroda was reported to have commented that there is no ground for the yen to rise. "They seem to be talking the yen down after the end of the fiscal year," Rugg said.